US housing starts surged in September at their fastest annual pace in 17 months on a big increase in groundbreaking for multi-family units, while permits for future construction fell.

The Commerce Department said housing starts increased 15.0 per cent to a seasonally adjusted annual rate of 658,000 units. That blew away analysts' forecasts of an increase to a 590,000-unit rate.

Housing starts for buildings with two or more units rose 51.3 percent to a 233,000-unit rate. Single-family home construction - which accounts for a larger share of the market - increased 1.7 per cent to a 425,000-unit pace.

Total starts in August were revised slightly higher to a 572,000 unit pace, which was previously reported as 571,000.

Housing starts are still well below their peak seen during the housing boom, although compared to September of last year, starts were up 10.2 per cent.

An overhang of previously owned homes on the market has left builders with little appetite to break ground on new projects and is frustrating the economy's recovery from the 2008-09 recession.

New building permits fell 5.0 percent to a 594,000-unit pace last month. Economists had expected overall building permits in September to fall to a 610,000-unit pace.

Permits were held back by a 14.5 per cent fall for buildings with two units and more. Permits to build single-family homes dropped 0.2 per cent.

New home completions rose 2.1 per cent to a 647,000-unit pace in September.

Reuters